Skyworks Solutions, Inc. (NASDAQ:SWKS) Q1 2024 Earnings Call Transcript

Skyworks Solutions, Inc. (NASDAQ:SWKS) Q1 2024 Earnings Call Transcript January 30, 2024

Skyworks Solutions, Inc. beats earnings expectations. Reported EPS is $1.97, expectations were $1.95. Skyworks Solutions, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to Skyworks Solutions First Quarter Fiscal Year 2024 Earnings Call. This call is being recorded. At this time, I will turn the call over to Raji Gill, Vice President, Investor Relations for Skyworks. Mr. Gill, please go ahead.

Raji Gill: Thank you, operator. Good afternoon, everyone, and welcome to Skyworks’ first fiscal quarter 2024 conference call. With me today is Liam Griffin, our Chairman, Chief Executive Officer, and President; and Kris Sennesael, Chief Financial Officer for Skyworks. This call is being broadcast live over the web and can be accessed from the Investor Relation section of the company website at skyworksinc.com. In addition, the company’s prepared remarks will be made available on our website promptly after the conclusion during the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are or may be considered forward-looking statements.

Please refer to our earnings press release and recent SEC filings, including our annual report on Form 10-K for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, the results and guidance we will discuss include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I’ll turn the call to Liam.

Liam Griffin: Thanks, Raji, and welcome everyone. Skyworks continued to execute well during the first fiscal quarter of 2024 despite a volatile macroeconomic environment. We delivered revenue of $1.202 billion. We posted earnings per share of a $1.97, and generated $775 million of operating cash flow. Free cash flow was also a record at $753 million or a 63% free cash flow margin, which reflects strong working capital management and moderating CapEx intensity. Let’s review both near and long-term secular trends in our end markets. After two challenging years across Android ecosystems, we see signs that the industry is stabilizing. Excess supply conditions are abating and inventory levels in the distribution channel and at the OEM level are normalizing.

Customers are starting to restock inventory, albeit gradually as supply and demand dynamics improve and new phones are introduced into the market. Moreover, we’ve made strategic investments in product development, positioning us to compete for design wins and share gains focusing on highly integrated platforms for the leading mobile OEMs. We are pleased with our competitive positioning and technology roadmap and are poised to return to growth when the markets recover. Within broad markets, we see crosscurrents, but many factors are moving in the right direction. In consumer IoT, we believe that we are past the bottom, as inventory levels in the channel have normalized and demand signals are improving. Furthermore, we are executing on the upgrade cycle to WiFi 6E and 7.

We see significant design win momentum across our retail, carrier, and enterprise channels. These systems carry substantially higher dollar content, because of the addition of the new 6 gigahertz band and the inclusion of BAW filtering technology. We expect wireless infrastructure and traditional data center will remain a headwind throughout 2024, as OEMs continue to digest excess inventory. Despite this, we remain bullish on several new product cycles, including major design wins in ethernet for high bandwidth networks and 400-gig and 800-gig optical module upgrades. Lastly, automotive and industrial markets are experiencing a near-term inventory correction. However, we see opportunities for growth in our automotive business driven by higher adoption rates of connectivity in the vehicle, along with growing EV penetration, driving demand for our power isolation products.

Taken together, we anticipate December quarter represents the bottom in the broad markets business. There are several long-term secular growth dynamics that leverage our differentiated technology, including the proliferation of intelligent edge connected IoT devices, automotive, electrification and advanced safety systems, and AI enabled workloads, driving cloud and data center upgrades. Each of these trends require intricate connectivity engines underlying the need for speed, ultra reliable low latency performance. In addition, 5G technology is expanding beyond the smartphone into more use cases in broad markets, including private cellular networks in factories and stadiums, customer premise equipment supporting Verizon and T-Mobile and multi-band, automotive, telematics, and wearables to name a few.

We also remain bullish on the long-term RF content story in smartphones, coupled with growing 5G penetration, we see increasing levels of complexity and content with each new generation. For example, 5G Advanced is driving higher RF content, including the addition of satellite bands 4×4 MIMO on the downlink and uplink, higher bandwidth, more carrier aggregation, upgrades to WiFi and GPS and other innovations. Lastly, we are energized about the prospect of generative AI migrating to the smartphone, sparking a potential major upgrade cycle, as the performance bar rises every year to support AI enabled phones, the complexity requirements of RF will continue to increase driving the need for more integration, lower power consumption, smaller footprint, and spectral efficiency.

5G is the ideal standard for on-device AI applications as it takes advantage of lower latency, faster transmission speeds and higher frequency ranges. In addition, AI enabled workloads are driving demand for high speed connectivity for data intensive infrastructure and cloud upgrades, accelerating the demand for our high precision timing products. Turning to our quarterly business highlights, we secured several design wins in infrastructure, including optical transport products with a major operator in India, and timing devices for 5G small cells for private networks. We expanded the WiFi design pipeline with Cisco’s enterprise access points, Linksys tri-band mesh router, and TP-link’s tri-band gaming router. We increased design win momentum in automotive, including telematics, infotainment systems, and onboard chargers across the leading OEMs. Lastly, in emerging IoT, we delivered next-generation smart energy solutions with Google’s Nest temperature sensors and introns residential gas meters.

In summary, Skyworks delivered solid financial results despite a challenging macro environment. Our strong balance sheet, record cash flow and profitability reflect our resilient business model, diverse customer base, and technology scale. With that, I will turn the call over to Kris for discussion of last quarter’s performance and our outlook for Q2 of fiscal 2024.

Kris Sennesael : Thanks, Liam. Skyworks’ revenue for the first fiscal quarter of 2024 was $1.202 billion, slightly above the midpoint of our outlook. Mobile was approximately 71% of total revenue, an increase of 7% sequentially, as we supported the ramp of new high-performance solutions at our largest customer. Android-related revenue with Google, Samsung and the Chinese OEMs grew modestly sequentially. Broad markets were approximately 29% of total revenue, down 18% sequentially, mostly driven by some specific inventory corrections in wireless infrastructure, automotive and industrial. Gross profit was $557 million, with gross margin at 46.4%, in line with expectations. Gross margin was down 70 basis points sequentially, driven by an unfavorable mix shift, resulting from lower broad markets revenue.

Also, during Q1, we reduced our internal inventory by $193 million to $927 million, well below our target of $1 billion. Operating expenses were $191 million, below the low end of the guidance range, given our ongoing focus on managing discretionary expenses, while continuing to invest in our technology and product roadmaps. We generated $366 million of operating income, translating into an operating margin of 30.4%. We incurred $7 million of other expense, and our effective tax rate was 11.7%, driving net income of $317 million and diluted earnings per share of $1.97, which is $0.02 above the guidance that we provided during the last earnings call. Skyworks’ business model continues to generate very strong cash flow. First fiscal quarter cash flow from operations increased to an all-time record of $775 million.

Capital expenditures were reduced to $22 million or less than 2% of revenue, resulting in an all-time record free cash flow of $753 million or 63% free cash flow margin. Strong profitability, combined with great working capital management and lowering the CapEx intensity of the business, drove the record cash flow numbers. Also, during fiscal Q1, we paid $109 million in dividends, and repaid the remaining $300 million on our term loan. We ended the quarter with over $1 billion in cash and investments, and $1 billion in debt, creating a net positive cash position, and an optimal capital structure, providing us with superior flexibility and optionality. Now, let’s move on to our outlook for Q2 of fiscal 2024. We anticipate revenue between $1.020 billion to $1.070 billion.

We expect our mobile business to be seasonally down, consistent with historical patterns, while in broad markets, we anticipate modest growth off the December bottom, as inventory levels are normalizing in certain end markets. Gross margin is projected to be in the range of 45% to 46%, reflecting our seasonally weakest period of the year. We anticipate margin expansion during the remainder of 2024, benefiting from our disciplined management of our manufacturing and operational cost structure, both internal and external, along with higher factory utilization rates. We will also benefit from a favorable mix shift as our broad markets business recovers and accelerates. We expect operating expenses in the range of $193 million to $197 million as we continue to make strategic investments in mobile and broad markets to drive share gains and increased diversification.

Below the line, we anticipate roughly $4 million in other expense and an effective tax rate of 11.5% and a diluted share count of approximately 161 million shares. Accordingly, at the midpoint of the revenue range of $1.045 billion, we intend to deliver diluted earnings per share of $1.52. Operator, let’s open the line for questions.

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Q&A Session

Operator: [Operator Instructions] And our first question coming from the line of Matt Ramsey with TD Cowen.

Matt Ramsay: Liam, I wanted to ask a bit about the broad markets trends and it’s obviously as the name implies, a diverse business. I was pleasantly, but I was a little bit surprised at the commentary that you had visibility for that business to be up so quickly, I guess, in March, it’s been an inventory correction that’s lasted a bit longer. And some of your peers and in other companies, and we’ve seen industrial maybe get a little bit worse. So I mean, if you could maybe expand — I know you did some in the prepared script, but if you could expand a little bit on maybe some of the individual end market trends you’re seeing in broad markets. And maybe what the pace of this potential recovery starting from March and through the rest of the year could look like coming off the bottom?

Liam Griffin : Sure. Sure. Absolutely. One of the interesting things here with our broad markets business is that there’s so many opportunities that we haven’t yet scaled. So if we look at the business unlike some of the other mobile markets that are well defined and there’s still great opportunities. We look at the broad markets as more of an open-ended play for us. We’re leveraging the technologies that we know how to work with. We have a great set of customers and that continues to grow and expand. But yes, I mean, the team has done a really good job. This has been a tough year across the landscape across semis. We’re happy to deliver some positive results here today, and we do think there’s a turn. Again, in that portfolio, it’s very diverse.

And mobile is a part of it, but the lion’s share is really diversified products. With some really great names as well. And most of those broad market companies, we have low share. There’s still a tremendous amount of room to grow within those accounts. So I think those are some of the themes. We’ve been working on this for quite a while. And finally putting up some meaningful top line, leveraging that broad markets business. The other thing, we continue to remind our customers and even the investors, a lot of the stuff we do in-house. So we’re able to craft and curate specialty products. We have our own fabs. We do things a little bit differently, and I think that helps our outcome.

Matt Ramsay: Got it. I guess, as my follow-up, and this is going to be a thematic that we talk about in the PC market maybe this year and then into next year in the smartphone market, as you alluded to, sort of AI making its way into these products and potentially catalyzing a bit of an upgrade cycle. So I guess my question is, I mean, it’s pretty straightforward for us to envision if you get air interface upgrades from 4G to 5G to what comes next, that can expand the RF TAM pretty meaningfully for your smartphone business. Are you anticipating the growth potential from AI and smartphones to be primarily a unit driver for the market and therefore, for your company? Or are there things that you guys can do in AI-enabled phones that could meaningfully change the content? Or are we sort of waiting for the next air interface before the content could possibly inflect for the TAM again?

Liam Griffin : Yes, I think it’s a secular opportunity. This is a really unique period for us and in the industry. The way we look at it, you look at AI and a lot of that is really intense servers data center, and that’s extremely important. Then you take it down kind of to the middle ground and then you’re kind of in a different position. But getting that to mobile is going to be a challenge. It’s going to be a challenge, but it will happen. The consumer wants that. The consumer wants to have that compute power in their hand. And it’s not there yet, but we really believe that it will come. And I think it’s going to set up the industry for a whole range of new opportunities still carrying radio frequency. So really excited about it.

And again, we have the building blocks and the know-how to do really interesting things and do it account by account as well. Not everybody wants the same solution. But we really do believe that heavy compute power has got to get matched up with something in your hand. That handheld device has got to step up. It’s got to grow, it’s going to be more — it’s going to need to be faster, lower latency. And that’s all good because those are problems that we can solve.

Operator: And our next question coming from the line of Chris Caso with Wolfe Research.

Chris Caso: First question is about the Android market right now. It sounds like that market has finally grown for you after several quarters of inventory correction. Can you speak to what your expectations are for that as you go through the year? I suppose at this point, the inventory correction is behind us. What’s your level of optimism of getting back to more normal growth rates in that part of the business?

Liam Griffin : Yes, Chris. Yes, you’re right. It’s been a little bit bumpy through the ecosystem here, but we see green shoots here popping up and Android. We know how to make these products. I think there was a little bit of a soft spot there in the industry. The newer phones are coming up with a little bit more technology. We like that. And we can broaden that base. So we are going to — in the prepared remarks, we commented on that, and you should expect more growth in the Android ecosystem as we go forward. These are products that we can execute to in the pipeline right now and give us continuing strength getting in — going through ’24 and ’25.

Chris Caso: Okay. As a follow-up on gross margins, if you speak to your expectations as we proceed through the year. One thing you mentioned is it sounds like you’re internal inventory was below target. Should we read that to mean utilization starts going higher? And what the effect on that will be on gross margins as we go through the year.

Kris Sennesael: Yes, Chris. So I’m really — when you look at gross margins, right, we did 46.4% in Q1. We’re still impacted there by underutilization, a little bit of a headwind from a mix point of view as well, that continues somewhat in the March quarter that we guided. But then when I look beyond the March quarter, we will see some really nice gross margin uplift in the remainder of the fiscal and the calendar year. Part of that is higher utilization because we will no longer have to focus on a reduction of inventory. That is behind us. We reduced the inventory by almost $200 million in the December quarter. There is maybe still a little bit of opportunity there, but we feel good about the inventory levels where they are right now.

In addition to that, our broad markets business is going to grow faster than the mobile business. And so that gives us a little bit of mix tailwind as well. And then in addition to that, we will really benefit from all the cost reductions that we’ve done over the last 12 months. We really focused on taking out structural parts of the cost structure. We focused on operational efficiencies, driving yield improvements and test time reductions. And in addition to internal cost, we also start seeing some benefit from external cost. And so when you put it all together, we will see some nice gradual gross margin improvement after the March quarter.

Operator: And our next question coming from the line of Christopher Rolland with Susquehanna.

Christopher Rolland : I guess, first of all, in broad markets, if you can — you had some great color as to how you break those out into kind of sub-segments. I would love to know kind of what those look like, how they’re trending. And then also, you alluded to the gross margin benefits as we move through the year. I don’t know if you can talk to the broad markets effect on gross margin as we move through the year.

Kris Sennesael: Yes. So as it relates to broad markets, roughly 40%, 45% is IoT, more consumer IoT, right, where we provide connectivity solutions in tablets, in wearables and PCs, your home connectivity with routers and all the access points that tap into that. In that market, the inventing — there has been an inventory correction for multiple quarters, but we are getting towards the end of the inventory correction there. In addition to that, we see strong growth in that part of the market due to an uplift in content as we transition from WiFi 6 into WiFi 6E and 7 type of solutions that has a substantially higher RF content of Skyworks inside. The next 30%, 35% is infrastructure, cloud, data center, enterprise networking. There is definitely an inventory correction going on in that part of the business that has started in the December quarter and will continue for a couple of quarters here.

Nevertheless, that as well. I think in that market, we’re very well-positioned with some key customers, including our timing solutions for data centers. And then the last part is 20%, 25% is automotive and industrial. There as well, I think we’re well-positioned. But you’ve heard it from many of our peers, there is an inventory correction going on I don’t think it will be a long drag-out inventory correction. It’s probably December, March, two quarters of an inventory correction. And then again, we are very well-positioned in that market the connected car that eventually become an autonomous car as well as EV, where we play with our power resolution solutions. And so again, when you put it all together, December is the bottom for our broad markets.

We start seeing some sequential growth in March and beyond. And as you know, yes, those markets typically have a higher gross margin compared to broad markets, and that will help us to lift the gross margin.

Christopher Rolland : You guys already talked about AI smartphones, but also you called out AI-enabled workloads driving cloud and data center upgrades. You also talked about 800-gig and this being an opportunity for you. Is that all related to your timing business from your acquisition? Or are there other ways that you’re leveraging infrastructure around AI as well?

Liam Griffin : Yes, largely through the infrastructure business that we have and some of the technology that we brought forth in our Silicon Labs deal, that’s driving new vectors for us in the industrial markets and the data center markets, and it’s a really vibrant growth source for us, and there’s a lot of room to grow there as well. So lots more to do, but we’ve been making some great progress in that area.

Operator: Our next question is coming from the line of Edward Snyder with Charter Equity Research.

Edward Snyder: I’d like to touch on, if we could, later this year, especially in mobile, it seems pretty clear at this point, given your largest customer scrambled to get their thing done by 2025 that most all attention on that and that we’re going to have kind of a — I don’t know the best way to put it, but basically, kind of on hold — not on hold, but a repeat of what we’ve seen before, nothing — not much new in the new one and the competition scrip. So basically, I would expect in the fall, you’re going to see more competition or you already know it now. Sure Qualcomm going to talk about a lot on Wednesday. So I’m trying to get a feel for the profile of your mobile business in the second half of the year. It sounds like it might be weaker than we normally since Qualcomm share got to come out of somebody.

If you could maybe characterize or just without getting into too much detail about what should we look at in terms of the mix in the second half you’re already talking about broad markets being much stronger. The mobile by implication is going to be a little bit weaker. And is that mostly just organic growth? Or is there going to be some share loss? Or how do we think about that? And then I have a follow-up, please.

Liam Griffin : Yes. Well, of course, Ed, we’re deeply engaged with mobile in all angles, right? So we have a broad set of technologies that are applicable to multiple customers, including the largest. And that’s our craft. That’s the largest part of our portfolio. We’re growing across other markets, but certainly the know-how that we have in RF, the ability to do things in-house, as you know, and the vectors that we put forth to drive this company. So we’re all over it at every angle, and we’re continuing to work on market share and new innovations. Delighting our customers, over current consumption, expanding the reach, doing a little bit more in the Android markets that we’ve kind of hinted around that. We’re going to continue to execute there and still drive the best performance solutions that we can.

Edward Snyder: Okay. Maybe I could follow up with a different angle here. You’re going to grow in Android, you’ve kind of been under-earning there for several years. I think on purpose because you’ve done very well outside of that market. R&D is going up to in order to address the products yet because it’s a different product market. But margins typically are lower in that whole market. Competition is a lot more intense one, should we expect to see revenue growth in the second half? It’s a little early, but revenue growth the second half of the year, whether it’s on an inventory snapback or new product wins in Android try to take up some of that slack. And then, Kris, maybe you could articulate how that — how you’re going to offset the margin, the natural margin dilution of Android over, say, the U.S. customer and then, of course, all mobile dilution against broad markets in the second half, if you could, please.

Liam Griffin : Yes. So yes, we’re with you on that. So there’s a lot of opportunity for us to be more aggressive across the Android ecosystem. It’s not just China. You get names like Google and Samsung, they are tremendous opportunities that we can drive. We’re built for this kind of stuff. And we have an end-to-end process that we continue to improve and refine at every turn. It helps our customers. It helps our gross margin our utilization. We have incredible factories, homegrown stuff that we have here in Irvine that really, really is the solution of choice as far as I know, with our technology know-how and the ability to be flexible and customizable to each account. And I think that’s an asset for us, and I think we’ll continue to drive that portfolio. .

Kris Sennesael: Yes, as it relates to gross margin, the gross margin profile of our mobile customers is on or about the same. And part of that is because now we are somewhat selective. We are not sliding down in the mid or low end of the market. We stay at the high end. We stay at the high-performance part. And in that part of the market, you compete based on performance. It’s not a price competition. You compete based on performance. And again, that’s why gross margins are somewhat the same in — with all the customers in that segment.

Operator: Our next question coming from the line of Gary Mobley with Wells Fargo.

Gary Mobley: I want to start with a quick housekeeping question. What was the mix of revenue from your largest customer in the quarter?

Kris Sennesael: The largest customer was approximately 73% of total revenue which is high, obviously, because the December quarter is the top quarter with the largest customer. And given that the broad markets was bottoming out in December, you get to on or about 73%. Obviously, when you look forward on full year basis or even in March, it will be well below the 73%.

Gary Mobley: I want to ask Ed’s previous question and perhaps a more direct way. Doing the math, it would indicate that your Android-related mobile customers are trending now at about a $400 million annualized rate or at least that was the case for the December quarter. But in the past, fiscal year ’22, I believe that level is closer to $800 million. And so my question is, if we see a rebound in the Android market. And based on your design win footprint that you currently have today, can we expect that segment of your business to bounce back to the previous level?

Liam Griffin : Yes, absolutely. We’ve got, as I said, a lot of opportunity to go harder and stronger and more direct on the Android ecosystem. We absolutely have technology to make it work. We have the scale manufacturing scale and know how to get it done. So yes, I mean, it’s certainly a play for us there, and I think we’ll take advantage.

Operator: Our next question coming from the line Karl Ackerman with BNP Paribas.

Karl Ackerman: Two questions, if I may. On mobile, your largest customer is down on a seasonal basis in March. But at the same time, given your improving execution within Android, does Android grow sequentially in March? How do we think about that within mobile, please? And I have a follow-up.

Kris Sennesael: Yes. Android is kind of flattish, slightly up into March.

Karl Ackerman: Got it. At the same time, I do want to touch on mobile. One more time. It’s been asked in several different ways, but I guess I’ll try it again. You are less tied to China MPRS. But are you seeing any changes to the competitive landscape in China. I ask because there are anecdotes supporting China RF suppliers winning content in low band saw and TC-SAW. But at the same time, as you indicated earlier, Kris, you’re not necessarily competing in that particular on the market. So if you can just highlight the committed landscape and what you’re seeing in China that would be very helpful.

Liam Griffin : Yes. I mean the OVX players, we do some reasonable business there. We could probably do a little bit more on the Android side, but we really don’t step down much further there. We’re not in the low end at all. We could be, but I think we generate a better outcome for our customers and our shareholders to drive that mid and high end. So it’s something we can do. But I think the way our business runs, I think, we’re more accretive as a company going down the playbook that we have today.

Operator: Our next question coming from the line of Vivek Arya with Bank of America Securities.

Blake Friedman: This is Blake Friedman on for Vivek. I just wanted to focus on OpEx, it seems spending has returned to levels seen prior to the industry downturn. So I was curious how we should think about the trajectory of OpEx for the remainder of the year.

Kris Sennesael: Yes. So as it relates to OpEx, I think we did a good job in the December quarter at $191 million we are guiding with a little step-up in March to $195 million. Keep in mind that this is the start of a new calendar year. And so you get a reset of the social charges and some of that, that kicks in. In addition to that, we are going to continue to invest in our technology and product road maps. We feel good about our position with our mobile players. As Liam articulated, we have plenty of opportunity in our broad markets. And we’re going to continue to invest. Now we’re going to do it the Skyworks way. We focus on efficiency, effectiveness. We’re not wasting any dollars here. And so — but yes, we’re going to continue to invest. And so OpEx will continue to gradually move up in the remainder of the fiscal and calendar year.

Blake Friedman: Got it. And then kind of quickly circling back on some of your comments. I know the broad markets business is a key initiative for Skyworks. And just with the business kind of returning to this cash positive level and generating pretty strong cash flow from here. Just curious how you think about M&A and anything in particular you guys would look to add to the broad markets assets?

Kris Sennesael: Yes. First of all, the cash flow is outstanding, and it’s definitely something that we focus on. And so we generate a ton of cash. As you have seen in the last couple of quarters, we have used that cash flow. Of course, we continue to invest in the business. We pay our dividends every quarter. And we have been paying off the term loan that, as you probably know, had a variable interest rate and was getting a little expensive there. But we are done with that. And so now, again, looking forward, we have — we will continue to drive a very strong free cash flow. It’s not going to be every quarter 63%. We feel we have a sustainable plus 30% free cash flow margin on a fiscal or calendar year basis. But that’s generating a lot of cash.

And of course, we want to put that cash to work we have optionality. We can switch on the buybacks or we can be active from an M&A point of view. And as you know, we — yes, we focus on becoming a more diverse company despite the fact that we like the mobile business, but we focus on becoming a more diverse company in part through organic investments in that business but we have the optionality to accelerate through M&A, and we’re working that.

Operator: And our next question coming from the line Thomas O’Malley with Barclays.

Thomas O’Malley: I just wanted to understand the underutilization charges into the March quarter. Obviously, gross margin being guided down slightly. But you’re seeing broad market step-up. So that mix should help you. Where are you seeing more of those underutilization charges? Are those as a percentage basis coming more on the mobile side or more on the broad market side?

Kris Sennesael: So no, it’s not really tied to one of the businesses. But we have been bringing down the utilization of our factories in part because the revenue is down year-over-year, but also because we have been focusing on driving down the inventory, right? We are taking our medicine now. We’re not just building inventory to protect the gross margin. Now it takes a little bit of time for those underutilization charges to hit the P&L. It goes through an inventory cycle, right? That’s why you continue to see slightly down gross margins on a sequential basis into the March quarter. But again, we have confidence that March is the bottom in terms of gross margin, and you will start seeing gradual improvements after the March quarter.

Thomas O’Malley: Helpful. And then just on the moving pieces for the back half of the fiscal year. It sounds like Android is getting better typical seasonality on the — on your largest customer side in mobile. But I just want to get a feel for what you guys kind of are looking at in terms of the reacceleration of broad markets. If you look at March for your guidance, up slightly. You’re still down 20% year-over-year. Do you think that kind of exiting your fiscal year, are you looking to kind of be growing year-over-year? Or just can you give us any kind of color on the pace of recovery there just because I know things are improving, but just how quickly is something that I think is a little more difficult to wrap our heads around.

Liam Griffin : Yes, sure. There’s a lot there, but I think I get your point. So we definitely believe there’s going to be more acceleration in revenue in the broad markets. We have a roster of incredible companies that we’re serving right now for Cisco to Ford, Daimler, Nest, we talked about before Google Company. It’s a very diverse set of products and customers in the broad markets portfolio, and that’s what we like. Each one has their own vector. And we’re continuing to nurture that and grow into that. And it also have a great opportunity on the sales side because we do have quite a bit of revenue in mobile. But the number of accounts that we haven’t served yet is still very, very high, and that’s a great opportunity for us to go after.

Operator: And our last question in queue coming from the line of Quinn Bolton with Needham.

Quinn Bolton: It’s been a couple of questions on the call that seem to be alluding to perhaps you guys may be losing content at your largest customer in the second half of the year. And I haven’t heard you guys specifically address that. Can you give us any thoughts as you look into the second half, how you’re feeling content-wise at that largest customer? And then I’ve got a follow-on for Kris on the gross margins.

Liam Griffin: Yes. I think we have a great position with our largest customer. Nothing really is concerning on that point. I mean we know exactly who we are and who they are, and we have great partnerships and will continue to drive success.

Quinn Bolton: Okay. And then for Kris, you’ve kind of talked about the gross margin drivers. Potentially pretty quick recovery post the March bottom. I’m just kind of curious. Is there — can you give us any sense how quickly can you get back to 50%? Is that something you think you can do in the calendar year ‘24? And does it require you to get to a certain revenue level to get rid of some of those underutilization charges or are things like product mix, a much bigger factor as well as the cost reductions you’ve taken to getting back to that 50%, so it tends to be maybe a little bit less driven by a certain revenue level? Just what’s the best way to think about getting back to 50%?

Kris Sennesael: Yes. I mean, we guide only one quarter at a time, and there’s a reason for it, right? There’s a lot of puts and takes that go into the equation. But again, we have confidence that March, 45%, 46% guide is the bottom. We will start seeing gradual improvement from there. We obviously want to get as fast as we can back to the 50%, right? And then once we get back to the 50%, we’re not going to stop there. Our long-term target model calls for 53% gross margin, and we believe we can do that. There is no structural impairments in the business that will prevent us that. But obviously, yes, we need revenue growth and we need to get better factory utilization that in combination with all the cost efficiencies internally and externally that we have been working on and will continue to work on, right.

Keep the conviction that we will get back to the 50% in a reasonable amount of time. And then we’re going to keep driving it towards our target normal of 53%, but we’ll provide an update on a quarter-by-quarter basis.

Operator: Ladies and gentlemen, that concludes today’s question-and-answer session. I’ll now turn the call back over to Mr. Griffin for any closing comments.

Liam Griffin: Thank you all for joining. Look forward to seeing you at upcoming conferences. Thanks.

Operator: Ladies and gentlemen, this concludes today’s conference call. We thank you for your participation. You may now disconnect.